Does This Settlement Spell Trouble for Dow and DuPont?

They might not have to whitewash its impact, but it's troubling all the same

Dozens of leading cosmetics companies agreed last month to a lawsuit settlement even though the trial attorneys suing them admit there is no evidence of any risk to human health. While Revlon, L'Oreal , and over one hundred other manufacturers are responsible for the outcome of the case, it might be Dow Chemical(NYSE:DOW) and DuPont(NYSE:DD) that feel its effects.

Wielding California's Safe Drinking Water and Toxic Enforcement Act like a cudgel, the lawyers attacked manufacturers of cosmetics, sunscreen, skincare products, soap, and shampoo for using titanium dioxide, or TiO2, in their formulations and not warning consumers of its presence. The California law added TiO2 as a chemical known to cause cancer despite their being no such proof a link exists.

The chemical is the whitest substance on Earth. It's used in everything from sunscreen and toothpaste to food coloring and vehicle coatings. The milk you drink is whitened with it, an Oreo's creme is brighter because of it, and a whole host of non-white foods use it as an additive and flavor enhancer. Paint, in particular, has greater opacity because of TiO2, much better than either zinc or lead, though it also leads to chalkiness and reduced adhesion.

Four companies produce the bulk of the world's titanium dioxide supply with DuPont being the world's largest and DuPont coming in second. Kronos Worldwide and Huntsman are tied for third place with a 10% share while Tronox is the world's largest fully integrated producer.

Paints and coatings are by far the largest industrial consumers of the pigment, accounting for more than half of all demand, while plastics are a distant second, and paper is further behind in third. Inks, ceramics, cosmetics, and textiles also use it in varying degrees, though in much lower quantities.

The supposed risk of TiO2 comes from airborne particles primarily in dusty environments where production workers, such as those involved in its packing, milling, site cleaning, or maintenance can inhale it. The World Health Organization's International Agency for Cancer Research said there's a possibility such conditions could be a cause for cancer, but further research was needed. California, however, took that ball and ran with it concluding it was therefore a known cancer-causing agent. But the IARC's conclusions were reached in part based on studies where rats were exposed to fine, airborne particles for as long as 10 hours a day, five days a week.

That's different than the use of titanium dioxide nanoparticles, about which there's a lot of contention over their safety, and Dunkin Brands(NASDAQ:DNKN) was recently the target of a shareholder resolution calling for it to identify which donuts it used them on.

The dusty production conditions are also a much different situation than what some woman applying cosmetics to her face is going to confront, and it's why the trial lawyers had to admit there was no proof that what they were using was actually a danger. They note they're "not saying that powder cosmetic products are necessarily unsafe, but it does want to raise awareness" and push for further study. Their contention is that until such studies are completed, manufacturers either need to label the risk on their products or remove them from their formulations.

And that's what the cosmetics makers have agreed to do, agreeing to relabel their cosmetics or remove the offending ingredient. No dollar figure was disclosed, but last year Nu Skin Enterprises(NYSE:NUS) agreed to pay the same lawyers $19,500 for a similar violation, and various other cosmetics companies agreed to settle as well for varying amounts.

So while the actual dollar damages might not be particularly significant, the cost of the recall could add up and the titanium dioxide producers, already coping with a collapse in pricing, may just find another outlet for their product closed off. It likely won't be a significant hit, but it's also one that doesn't seem to have been needed to be taken in the first place.

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Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.